What’s one of the scariest things that can happen to your business? In addition to your product or service not being up to par, receiving an audit from the IRS might be pretty high on that list. But being audited isn’t the end of the world (or your business) if you know how to handle it. Here are 8 action steps to take if you do get audited by the IRS.
Whenever you complete a tax return, you need to gather your documentation. The documentation may not be required, but it’s very helpful in proving your case. Be sure that you’re able to provide receipts, canceled checks, and other supporting documents that show income and deductible expenses. And don’t forget about bank/credit card statements! They can help document all types of expenses, including travel or entertainment.
Take inventory of all your business transactions. Look at bank statements, credit card statements, receipts, and anything else that has a transaction number on it. You will need these numbers when you speak with an auditor. Review each one and make sure they are accurate and accounted for in your records. As mentioned above, the more organized you are, the more likely an audit will go smoothly without going over every detail with you. The last thing you want is for an auditor to look at your accounting book and tell you he or she found something wrong because there was no way to know what was right in a timely manner.
The government will send you a bill if they see issues with your taxes. It can be nerve-wracking, but don’t panic; you are under no obligation to pay an amount assessed if returns aren’t filed, if it doesn’t look right, or if paying them would create a financial hardship. In fact, you have a right to appeal and your taxes will remain frozen until your case is heard. This means that while tax season looms closer every day, there’s still time for you to settle on a figure that works best for both parties before it arrives.
In the meantime, it is important to make sure all returns are filed, and the IRS usually grants a hold on any collective action in order to do so. Have your accountant explore these types of options.
Working with an accountant and attorney can help give you peace of mind and will save you time and money in a variety of ways. Their expertise will make life easier for you, but also keep more money in your pocket when it comes time for tax day. Before accepting services from any accounting firm though, make sure you do your homework first. By asking questions like how long they’ve been doing business or if they’ve done any audits before, you can quickly weed out those who are not truly qualified to help your business succeed. Also, make sure to get a breakdown of what you’re being charged for.
1) Respond Quickly
The first thing you want to do when you get an audit notice is to contact your accountant and/or lawyer. This shouldn’t come as a surprise, but if your business has been audited once, it will likely be audited again until whatever causes it is no longer there. Don’t let any surprises catch you off guard next time. Next, you want to notify key personnel: The last thing you want is for things to escalate because people are uninformed or in over their heads. Ensure that everyone who needs to know—including partners—is made aware of what’s going on right away so they can respond accordingly if necessary.2) Request an extension
One of your first moves should be to ask for an extension. This is a courtesy you’re afforded so that you can have time to collect, organize and present your information in a manner that makes sense. Just make sure it doesn’t become a habit. Most taxpayers ask for extensions before they even know they need one; if you don’t think you’ll be able to get everything together on time, chances are good it won’t happen. And while an extension is useful, that doesn’t stop interest. File an extension ASAP and then start gathering documentation or reaching out for help from a professional if necessary.3) Gather all documentation
4) Know What You are Accountable For
Take inventory of all your business transactions. Look at bank statements, credit card statements, receipts, and anything else that has a transaction number on it. You will need these numbers when you speak with an auditor. Review each one and make sure they are accurate and accounted for in your records. As mentioned above, the more organized you are, the more likely an audit will go smoothly without going over every detail with you. The last thing you want is for an auditor to look at your accounting book and tell you he or she found something wrong because there was no way to know what was right in a timely manner.
5) Don’t Lie!
Don’t try to hide anything or make up a story; simply disclose everything and let them sort it out from there. While many audits are random, some audits are triggered because of something suspicious on your tax return. The best course of action is complete transparency—disclose every possible discrepancy and let them sort through it without having any preconceived notions about what’s going on. Otherwise, they won’t just be questioning your business returns but everything in your personal life as well, which will be much more difficult than simply dealing with your taxes.7) Get It In Writing (Or Face It Later)
The best way to reduce a tax bill or audit risk is never to assume anything. Know your business numbers, even if you have someone else crunch them for you. Keep good records and request formal statements from any third parties who are responsible for taxes or payments on your behalf (that’s what those W-9s are for). And make sure that it’s written down; there’s nothing like an invoice with a signature on it to get you out of an audit. The same goes for agreements between separate entities. When in doubt, get it in writing before you take action, just in case there’s ever a problem later on—the most costly audits come from disputes over who said what when, and how payment was calculated.8) COMPLIANCE
The government will send you a bill if they see issues with your taxes. It can be nerve-wracking, but don’t panic; you are under no obligation to pay an amount assessed if returns aren’t filed, if it doesn’t look right, or if paying them would create a financial hardship. In fact, you have a right to appeal and your taxes will remain frozen until your case is heard. This means that while tax season looms closer every day, there’s still time for you to settle on a figure that works best for both parties before it arrives.
In the meantime, it is important to make sure all returns are filed, and the IRS usually grants a hold on any collective action in order to do so. Have your accountant explore these types of options.
9) Use help from professionals whenever possible
Working with an accountant and attorney can help give you peace of mind and will save you time and money in a variety of ways. Their expertise will make life easier for you, but also keep more money in your pocket when it comes time for tax day. Before accepting services from any accounting firm though, make sure you do your homework first. By asking questions like how long they’ve been doing business or if they’ve done any audits before, you can quickly weed out those who are not truly qualified to help your business succeed. Also, make sure to get a breakdown of what you’re being charged for.